The present invention is directed to a method of doing business. More particularly, the present invention is directed to a method of turning a liability (unpaid taxes) into a marketable asset and securing financing based on the collective value of those assets.
Budgeting at the local government level is a veritable nightmare given that moneys for funding schools, roads and other civic needs, which flow from federal and state sources in good times, can dry up when things do not go according to plan up the food chain. Compound that with the fact that job losses and other personal financial crises can result in property owners withholding tax payments which are due the taxing district, and a huge monkey wrench is thrown into a budget. Budgets are based on anticipated income and when a significant percentage of anticipated tax revenues are unpaid, expenses may outstrip income. In addition, collection procedures are typically quite lengthy. Normally, after taxes are six months past due, delinquency notices are mailed by the taxing district, with subsequent notices being mailed in some districts, advising the owner that their property may be subjected to a tax sale to satisfy the delinquency. Actual sales can be delayed until the taxes are 2 to 3 years past due. Needless to say, waiting up to three years to collect anticipated income destroys the budgeting process for the year in which the taxes are delinquent and two years thereafter (assuming the tax payer continues not to make timely tax payments). Even though late payment of taxes can carry a penalty and accrue interest for the delinquency period, this fails to make up for the absence of payment of the funds in the fiscal year when payment was anticipated. Total funding shortfall can accumulate into the millions of dollars for a taxing district over several year period.
The present inventive method proposes to turn a liability (the unpaid tax bill) into a marketable asset for the taxing district and use the collective uncollected tax bills for several previous fiscal years as collateral to secure a loan to supplant the lost revenue. Taxing district, as used herein, can include schools, counties, cities and special districts. Since most financial institutions are reluctant to lend monies secured by unpaid taxes, given the “iffy-ness” of repayment, to implement this transaction, the intervention of a civic-minded agency forms a necessary ingredient. Finally, given 1) the fact that neither civic-minded public authorities nor banks are simply going to “crawl out of the woodwork” and 2) the fact that most taxing districts are unaware that their uncollected taxes can be turned into a marketable asset, a broker is needed to pull all the pieces of this puzzle together and allow this transaction to take place.
The business method of the present invention requires a broker to take the steps of finding a public authority willing to buy tax liens held by a taxing district to provide immediate funding for the taxing district; negotiating a purchase price for outstanding tax liens as a percentage of a basis defined as the liens between agreed dates for marketable properties; securing a lender willing to loan the purchase price to the buyer for a set closing cost amount and at a negotiated interest rate for agreed upon term.
Typically, the agreement will necessarily include a provision whereby the taxing district continues to administer collection procedures on deficient taxes and uses the funds obtained thereby to repay the loan. The broker will also negotiate a provision such that the loan agreement is renewable annually by replacing the oldest year's tax liens with the most recent year's liens for the re-computed purchase price on the new basis.
The method typically includes the step of negotiating a buy-back provision in which the taxing district agrees to resume ownership of the tax liens by paying the amount still owed the lender after a fixed number of months following the most recent renewal of the loan agreement. Finally, the broker will negotiate an opt out provision with the taxing district in which, once the lender has been fully repaid, the taxing district has the option a) to acquire all outstanding liens for a negotiated percentage of their face amount (i.e., 10%) or, alternatively, b) to leave authority to collect the leans with the acquiring public agency.
Various other features, advantages and characteristics of the present invention will become apparent to one of ordinary skill in the art after a reading of the following specification.